SOME JURISPRUDENCE ON ALTERNATIVE DISPUTE RESOLUTION

Koppel, Inc. vs. Makati Rotary Club Foundation, Inc.

G.R. No. 198075 (September 04, 2013)

Will the disagreement between parties to a contract be rendered nonarbitrable if, in the arbitration thereof, the
validity of the contract itself will have to be determined? May a party to a contract invoke the arbitration clause
thereof and, at the same time, impugn the validity of the contract itself? Is it necessary for a party seeking
arbitration to first file a request or an application therefor with the court to render an arbitration clause
operational? If parties to a contract already underwent Judicial Dispute Resolution (JDR) proceedings before
the court, may they still refer their dispute to arbitration?
FACTS:
In 1975, Fedders Koppel, Incorporated (FKI) bequeathed a parcel of land exclusive of improvements thereon in
favor of Respondent Makati Rotary Club Foundation, Inc. by way of a conditionaldonation. Respondent
accepted the donation with all of its conditions. On 26 May 1975, FKI and the Respondent executed a Deed of
Donation evidencing their consensus.
One of the conditions of the donation required the Respondent to lease the subject land back to FKI under
terms specified in their Deed of Donation. With the Respondents acceptance of the donation, a lease
agreement between them was, therefore, effectively incorporated in the Deed of Donation.
Pertinent terms of such lease agreement, as provided in the Deed of Donation, were as follows:
1.
2.

The period of the lease is for twenty-five (25) years, or until the 25 th of May 2000;
The amount of rent to be paid by FKI for the first twenty-five (25) years is P40,126.00 per annum.

The Deed of Donation also stipulated that the lease over the subject property is renewable for another period of
twenty-five (25) years upon mutual agreement of FKI and the Respondent. In which case, the amount of rent
shall be determined in accordance with item 2(g) of the Deed of Donation.
In October 1976, FKI and the Respondent executed an Amended Deed of Donation that reiterated the
provisions of the Deed of Donation, including those relating to the lease of the subject land.
Verily, by virtue of the lease agreement contained in the Deed of Donation and Amended Deed of Donation,
FKI was able to continue in its possession and use of the subject land.
Two (2) days before the lease incorporated in the Deed of Donation and Amended Deed of Donation was set to
expire, or on 23 May 2000, FKI and Respondent executed another contract of lease (2000 Lease Contract)
covering the subject land. In this 2000 Lease Contract, FKI and Respondent agreed on a new five-year lease to
take effect on the 26th of May 2000, with annual rents ranging from P4M for the first year up to P4.9M for the
fifth year.
The 2000 Lease Contract also contained an arbitration clause enforceable in the event the parties come to
disagreement about the interpretation, application and execution of the lease.
After the 2000 Lease Contract expired, FKI and Respondent agreed to renew their lease for another five (5)
years. This new lease (2005 Lease Contract) required FKI to pay a fixed annual rent of P4.2M.In addition to
paying the fixed rent, however, the 2005 Lease Contract also obligated FKI to make a yearly donation of
money to the Respondent. Such donations ranged from P3M for the first year up to P3.9M for the fifth year.
Notably, the 2005 Lease Contract contained an arbitration clause similar to that in the 2000 Lease Contract, to
wit:

19. Governing Law The provisions of this [2005 Lease Contract] shall be governed, interpreted and
construed in all aspects in accordance with the laws of the Republic of the Philippines.
Any disagreement as to the interpretation, application or execution of this [2005 Lease
Contract] shall be submitted to a board of three (3) arbitrators constituted in accordance with
the arbitration law of the Philippines. The decision of the majority of the arbitrators shall be
binding upon [FKI and Respondent]. (Emphasis supplied)
From 2005 to 2008, FKI faithfully paid the rentals and donations due it per the 2005 Lease Contract. But in
June of 2008, FKI sold all its rights and properties relative to its business in favor of herein Petitioner Koppel,
Incorporated.
On 29 August 2008, FKI and Petitioner executed an Assignment and Assumption of Lease and Donation
wherein FKI, with the conformity of the Respondent, formally assigned all of its interests and obligations under
the Amended Deed of Donationand the 2005 Lease Contract in favor of Petitioner.
The following year, Petitioner discontinued the payment of the rent and donation under the 2005 Lease
Contract.
Petitioners refusal to pay such rent and donation emanated from its belief that the rental stipulations of
the 2005 Lease Contract, and even of the 2000 Lease Contract, cannot be given effect because they violated
one of the material conditions of the donation of the subject land, as stated in the Deed of
Donation and Amended Deed of Donation.
According to Petitioner, the Deed of Donation and Amended Deed of Donation actually established not only
one but two (2) lease agreements between FKI and Respondent, i.e., one lease for the first twenty-five (25)
years or from 1975 to 2000, and another lease for the next twenty-five (25) years thereafter or from 2000 to
2025. Both leases are material conditions of the donation of the subject land.
Petitioner points out that while a definite amount of rent for the second twenty-five (25) year lease was not fixed
in the Deed of Donation and Amended Deed of Donation, both deeds nevertheless prescribed rules and
limitations by which the same may be determined. Such rules and limitations ought to be observed in any
succeeding lease agreements between Petitioner and Respondent for they are, in themselves, material
conditions of the donation of the subject land.
In this connection, Petitioner cites item 2(g) of the Deed of Donation and Amended Deed of Donation that
supposedly limits the amount of rent for the lease over the second twenty-five (25) years to only three percent
(3%) of the fair market value of the [subject] land excluding the improvements.
For Petitioner then, the rental stipulations of both the 2000 Lease Contract and 2005 Lease Contract cannot be
enforced as they are clearly, in view of their exorbitant exactions, in violation of the aforementioned threshold in
item 2(g) of the Deed of Donationand Amended Deed of Donation. Consequently, Petitioner insists that the
amount of rent it has to pay thereon is and must still be governed by the limitations prescribed in the Deed of
Donationand Amended Deed of Donation.
Respondent then sent Demand Letters to Petitioners notifying the latter of its default, demanding for the
settlement of the rent and donations due for the year 2009. Respondent intimated of cancelling the 2005
Lease Contract should Petitioner fail to settle the said obligations. In its last sent Demand Letter, Respondent
demand Petitioner to immediately vacate the leased premises should it fail to pay such obligations within
seven (7) days from its receipt of the letter.
Petitioner refused to comply with the demands of the Respondent. Instead, on 30 September 2009, Petitioner
filed with the RTC of Paraaque City a Complaint for the Rescission or Cancellation of the Deed of
Donation and Amended Deed of Donation against the Respondent.
On 5 October 2009, Respondent filed an Unlawful Detainer caseagainst the Petitioner before the MeTC of
Paraaque City.
On 4 November 2009, Petitioner filed an Answer with Compulsory Counterclaim.In it, Petitioner reiterated its
objection over the rental stipulations of the 2005 Lease Contract for being violative of the material conditions of
the Deed of Donation and Amended Deed of Donation.

On 27 April 2010, the MeTC rendered judgment in favor of the Petitioner. While the MeTC refused to dismiss
the action on the ground that the dispute is subject to arbitration, it nonetheless sided with the Petitioner with
respect to the issues regarding the insufficiency of the Respondents demand and the nullity of the 2005 Lease
Contract.
The Respondent appealed to the RTC which reversed the MeTCs decision.
Aggrieved, the Petitioner appealed to the CA which affirmed the decision of the RTC.
Hence, the present Petition for Review on Certiorari under Rule 45.
ISSUE:
Whether or not the present dispute is arbitrable under the Arbitration Clause of the 2005 Lease Agreement
Contract?
ARGUMENTS:
At different points in the proceedings of this case, the following arguments were offered against the application
of the arbitration clause of the 2005 Lease Contract:
1.

2.

The disagreement between the Petitioner and Respondent is non-arbitrable as it will inevitably touch
upon the issue of the validity of the 2005 Lease Contract. It was submitted that one of the reasons
offered by the Petitioner in justifying its failure to pay under the 2005 Lease Contract was the nullity of
such contract for being contrary to law and public policy. The Supreme Court, in Gonzales v. Climax
Mining, Ltd. [2005], held that the validity of contract cannot be subject of arbitration proceedings as
such questions are legal in nature and require the application and interpretation of laws and
jurisprudence which is necessarily a judicial function.
The Petitioner cannot validly invoke the arbitration clause of the 2005 Lease Contract while, at the
same time, impugn such contracts validity.

3.

Even assuming that it can invoke the arbitration clause whilst denying the validity of the 2005 Lease
Contract, Petitioner still did not file a formal application before the MeTC so as to render such
arbitration clause operational. Section 24 of Republic Act No. 9285 requires the party seeking
arbitration to first file a request or an application therefor with the court not later than the preliminary
conference.

4.

Petitioner and Respondent already underwent JDR proceedings before the RTC. Hence, a further
referral of the dispute to arbitration would only be circuitous. Moreover, an ejectment case, in view of
its summary nature, already fulfills the prime purpose of arbitration, i.e., to provide parties in conflict
with an expedient method for the resolution of their dispute. Arbitration then would no longer be
necessary in this case.

RULING:
YES. None of the above-mentioned arguments have any merit. The MeTC, RTC and CA all erred in
overlooking the significance of the arbitration clause incorporated in the 2005 Lease Contract. As the SC sees
it, that is a fatal mistake.
Hence, the Petition is GRANTED and thus referring the Petitioner and the Respondent to arbitration pursuant
to the arbitration clause of the 2005 Lease Contract, repeatedly included in the 2000 Lease Contract and in the
1976 Amended Deed of Donation.
RATIO DECIDENDI:
The arbitration clause of the 2005 Lease Contract stipulates that any disagreement as to the interpretation,
application or execution of the 2005 Lease Contract ought to be submitted to arbitration. To the mind of the
Court, such stipulation is clear and is comprehensive enough so as to include virtually any kind of conflict or
dispute that may arise from the 2005 Lease Contractincluding the one that presently besets Petitioner and
Respondent.

First. The disagreement between the Petitioner and Respondent falls within the all-encompassing terms of the
arbitration clause of the 2005 Lease Contract. While it may be conceded that in the arbitration of such
disagreement, the validity of the 2005 Lease Contract, or at least, of such contracts rental stipulations would
have to be determined, the same would not render such disagreement non-arbitrable. The quotation
from Gonzales case that was used to justify the contrary position was taken out of context.
The pivotal issue that confronted the Court in the Gonzales casewas whether the complaint for arbitration
raises arbitrable issues that the Panel of Arbitrators of the Mines and Geosciences Bureau (PA-MGB) can take
cognizance of.
Gonzales decided the issue in the negative. In holding that the PA-MGB was devoid of any jurisdiction to take
cognizance of the complaint for arbitration, this Court pointed out to the provisions of R.A. No. 7942, or the
Mining Act of 1995, which granted the PA-MGB with exclusive original jurisdiction only over mining disputes,
i.e., disputes involving rights to mining areas, mineral agreements or permits, and surface owners,
occupants, claimholders or concessionaires requiring the technical knowledge and experience of mining
authorities in order to be resolved. Accordingly, since the complaint for arbitration in Gonzales did not
raise mining disputes as contemplated under R.A. No. 7942 but only issues relating to the validity of certain
mining related agreements, SC held that such complaint could not be arbitrated before the PA-MGB. It is in this
context that SC made the pronouncement now in discussion:
Arbitration before the Panel of Arbitrators is proper only when there is a disagreement between the parties as to
some provisions of the contract between them, which needs the interpretation and the application of that
particular knowledge and expertise possessed by members of that Panel. It is not proper when one of the
parties repudiates the existence or validity of such contract or agreement on the ground of fraud or oppression
as in this case. The validity of the contract cannot be subject of arbitration proceedings.Allegations of
fraud and duress in the execution of a contract are matters within the jurisdiction of the ordinary courts of
law. These questions are legal in nature and require the application and interpretation of laws and
jurisprudence which is necessarily a judicial function. (Emphasis supplied)
SC in Gonzales did not simply base its rejection of the complaint for arbitration on the ground that the issue
raised therein, i.e., the validity of contracts, is per se non-arbitrable. The real consideration behind the ruling
was the limitation that was placed by R.A. No. 7942 upon the jurisdiction of the PA-MGB as an arbitral
body. Gonzales rejected the complaint for arbitration because the issue raised therein is not a mining
dispute per R.A. No. 7942 and it is for this reason, and only for this reason, that such issue is rendered nonarbitrable before the PA-MGB. As stated beforehand, R.A. No. 7942 clearly limited the jurisdiction of the PAMGB only to mining disputes.
Much more instructive for our purposes, on the other hand, is the recent case of Cargill Philippines, Inc. v.
San Fernando Regal Trading, Inc [2011]. In Cargill, SC answered the question of whether issues involving
the rescission of a contract are arbitrable. The respondent in Cargill argued against arbitrability, also citing
therein Gonzales. After dissecting Gonzales, SC ruled in favor of arbitrability. Thus, SC held:
Respondent contends that assuming that the existence of the contract and the arbitration clause is conceded,
the CAs decision declining referral of the parties dispute to arbitration is still correct. It claims that its complaint
in the RTC presents the issue of whether under the facts alleged, it is entitled to rescind the contract with
damages; and that issue constitutes a judicial question or one that requires the exercise of judicial function and
cannot be the subject of an arbitration proceeding. Respondent cites our ruling in Gonzales, wherein we held
that a panel of arbitrator is bereft of jurisdiction over the complaint for declaration of nullity/or termination of the
subject contracts on the grounds of fraud and oppression attendant to the execution of the addendum contract
and the other contracts emanating from it, and that the complaint should have been filed with the regular courts
as it involved issues which are judicial in nature.
Such argument is misplaced and respondent cannot rely on the Gonzales case to support its
argument. (Emphasis ours)
Second. Petitioner may still invoke the arbitration clause of the 2005 Lease Contract notwithstanding the fact
that it assails the validity of such contract. This is due to the doctrine of separability.
Under the doctrine of separability, an arbitration agreement is considered as independent of the main contract.
Being a separate contract in itself, the arbitration agreement may thus be invoked regardless of the possible
nullity or invalidity of the main contract.

Once again instructive is Cargill, wherein SC held that, as a further consequence of the doctrine of separability,
even the very party who repudiates the main contract may invoke its arbitration clause.
Third. The operation of the arbitration clause in this case is not at all defeated by the failure of the Petitioner to
file a formal request or application therefor with the MeTC. SC finds that the filing of a request pursuant to
Section 24 of R.A. No. 9285 is notthe sole means by which an arbitration clause may be validly invoked in a
pending suit.
Section 24 of R.A. No. 9285 reads:
SEC. 24. Referral to Arbitration. A court before which an action is brought in a matter which is the
subject matter of an arbitration agreement shall, if at least one party so requestsnot later that the pretrial conference, or upon the request of both parties thereafter, refer the parties to arbitration unless it
finds that the arbitration agreement is null and void, inoperative or incapable of being performed.
[Emphasis ours; italics original]
The request referred to in the above provision is, in turn, implemented by Rules 4.1 to 4.3 of A.M. No. 07-1108-SC or the Special Rules of Court on Alternative Dispute Resolution (Special ADR Rules):
RULE 4: REFERRAL TO ADR
Rule 4.1. Who makes the request. A party to a pending action filed in violation of the arbitration agreement,
whether contained in an arbitration clause or in a submission agreement, may request the court to refer the
parties to arbitration in accordance with such agreement.
Rule 4.2. When to make request. (A) Where the arbitration agreement exists before the action is filed. The
request for referral shall be made not later than the pre-trial conference. After the pre-trial conference, the court
will only act upon the request for referral if it is made with the agreement of all parties to the case.
(B) Submission agreement. If there is no existing arbitration agreement at the time the case is filed but the
parties subsequently enter into an arbitration agreement, they may request the court to refer their dispute to
arbitration at any time during the proceedings.
Rule 4.3. Contents of request. The request for referral shall be in the form of a motion, which shall state that
the dispute is covered by an arbitration agreement.
Apart from other submissions, the movant shall attach to his motion an authentic copy of the arbitration
agreement.
The request shall contain a notice of hearing addressed to all parties specifying the date and time when it
would be heard. The party making the request shall serve it upon the respondent to give him the opportunity to
file a comment or opposition as provided in the immediately succeeding Rule before the hearing. [Emphasis
ours; italics original]
Attention must be paid, however, to the salient wordings of Rule 4.1. It reads: [a] party to a pending action filed
in violation of the arbitration agreement x x x may request the court to refer the parties to arbitration in
accordance with such agreement.
In using the word may to qualify the act of filing a request under Section 24 of R.A. No. 9285, the Special
ADR Rules clearly did not intend to limit the invocation of an arbitration agreement in a pending suit
solely via such request. After all, non-compliance with an arbitration agreement is a valid defense to any
offending suit and, as such, may even be raised in an answeras provided in our ordinary rules of procedure.
In this case, it is conceded that Petitioner was not able to file a separate request of arbitration before the
MeTC. However, it is equally conceded that the Petitioner, as early as in its Answer with Counterclaim, had
already apprised the MeTC of the existence of the arbitration clause in the 2005 Lease Contractand, more
significantly, of its desire to have the same enforced in this case. This act of Petitioner is enough valid
invocation of his right to arbitrate.
Fourth. The fact that the Petitioner and Respondent already underwent through JDR proceedings before the
RTC, will not make the subsequent conduct of arbitration between the parties unnecessary or circuitous. The
JDR system is substantially different from arbitration proceedings.

The JDR framework is based on the processes of mediation, conciliation or early neutral evaluation which
entails the submission of a dispute before a JDR judge who shall merely facilitate settlement between the
parties in conflict or make a non-binding evaluation or assessment of the chances of each partys case. Thus
in JDR, the JDR judge lacks the authority to render a resolution of the dispute that is binding upon the parties in
conflict. In arbitration, on the other hand, the dispute is submitted to an arbitrator/sa neutral third person or a
group of thereofwho shall have the authority to render a resolution binding upon the parties.
Clearly, the mere submission of a dispute to JDR proceedings would not necessarily render the subsequent
conduct of arbitration a mere surplusage. The failure of the parties in conflict to reach an amicable settlement
before the JDR may, in fact, be supplemented by their resort to arbitration where a binding resolution to the
dispute could finally be achieved. This situation precisely finds application to the case at bench.
Neither would the summary nature of ejectment cases be a valid reason to disregard the enforcement of the
arbitration clause of the 2005 Lease Contract. Notwithstanding the summary nature of ejectment cases,
arbitration still remains relevant as it aims not only to afford the parties an expeditious method of resolving their
dispute.
A pivotal feature of arbitration as an alternative mode of dispute resolution is that it is, first and foremost, a
product of party autonomy or the freedom of the parties to make their own arrangements to resolve their own
disputes. Arbitration agreements manifest not only the desire of the parties in conflict for an expeditious
resolution of their dispute. They also represent, if not more so, the parties mutual aspiration to achieve such
resolution outside of judicial auspices, in a more informal and less antagonistic environment under the terms of
their choosing. Needless to state, this critical feature can never be satisfied in an ejectment case no matter how
summary it may be.
Legal Effect of the Application of the Arbitration Clause
Since there really are no legal impediments to the application of the arbitration clause of the 2005 Contract of
Lease in this case, We find that the instant unlawful detainer action was instituted in violation of such clause.
The Law, therefore, should have governed the fate of the parties and this suit:
R.A. No. 876
Section 7. Stay of civil action. If any suit or proceeding be brought upon an issue arising out of an agreement
providing for the arbitration thereof, the court in which such suit or proceeding is pending, upon being satisfied
that the issue involved in such suit or proceeding is referable to arbitration, shall stay the action or
proceeding until an arbitration has been had in accordance with the terms of the agreement: Provided,
That the applicant for the stay is not in default in proceeding with such arbitration. [Emphasis supplied]
R.A. No. 9285
Section 24. Referral to Arbitration. A court before which an action is brought in a matter which is the subject
matter of an arbitration agreement shall, if at least one party so requests not later that the pre-trial conference,
or upon the request of both parties thereafter, refer the parties to arbitration unless it finds that the arbitration
agreement is null and void, inoperative or incapable of being performed. [Emphasis supplied]
It is clear that under the law, the instant unlawful detainer action should have been stayed; the Petitioner and
the Respondent should have been referred to arbitration pursuant to the arbitration clause of the 2005 Lease
Contract. The MeTC, however, did not do so in violation of the lawwhich violation was, in turn, affirmed by the
RTC and Court of Appeals on appeal.
The violation by the MeTC of the clear directives under R.A. Nos. 876 and 9285 renders invalid all proceedings
it undertook in the ejectment case after the filing by Petitioner of its Answer with Counterclaimthe point when
the Petitioner and the Respondent should have been referred to arbitration. This case must, therefore, be
remanded to the MeTC and be suspended at said point. Inevitably, the decisions of the MeTC, RTC and the
Court of Appeals must all be vacated and set aside.
The Petitioner and the Respondent must then be referred to arbitration pursuant to the arbitration clause of
the 2005 Lease Contract.

J Plus Asia Development Corporation vs. Utility Assurance Corporation

G.R. No. 199650 (June 26, 2013)

Does CA have jurisdiction to review arbitral awards?

FACTS:
Petitioner J Plus Asia Development Corporation and Martin E. Mabunay entered into a Construction
Agreement on December 24, 2007 whereby the latter undertook to build the formers 72-room
condominium/hotel located in Boracay Island.

The project, costing P42M, was to be completed within one year or 365 days reckoned from the first calendar
day after signing of the Notice of Award and Notice to Proceed and receipt of down payment (20% of contract
price). The P8.4M down payment was fully paid on January 14, 2008. Payment of the balance of the contract
price will be based on actual work finished within 15 days from receipt of the monthly progress billings. Per the
agreed work schedule, the completion date of the project was December 2008. Mabunay also submitted the
required Performance Bondissued by Respondent Utility Assurance Corporation in the amount equivalent to
20% down payment or P8.4M.

Mabunay commenced work at the project site on January 7, 2008. Petitioner paid up to the 7th monthly
progress billing sent by Mabunay. As of September 16, 2008, Petitioner had paid the total amount of P15.98M
inclusive of the 20% down payment. However, as of said date, Mabunay had accomplished only 27.5% of the
project. It was later found out by the joint inspection and evaluation by the Petitioner and Mabunay that, as of
November 14, 2008, the project was only 31.39% complete and that the uncompleted portion was 68.61%.
On November 19, 2008, Petitioner terminated the contract and sent Demand Letters to Mabunay and
Respondent surety. As its demands went unheeded, Petitioner filed a Request for Arbitration before the
Construction Industry Arbitration Commission (CIAC).
In his Answer, Mabunay claimed that the delay was caused by retrofitting and other revision works ordered by
Petitioner. He asserted that he actually had until April 30, 2009 to finish the project since the 365 days period
of completion started only on May 2, 2008 after clearing the retrofitted old structure. Hence, the termination of
the contract by Petitioner was premature and the filing of the Complaint against him was baseless, malicious
and in bad faith.

Respondent, on the other hand, filed a Motion to Dismiss on the ground that Petitioner has no cause of action
and the complaint states no cause of action against it. The CIAC denied the Motion to Dismiss.

In its Answer Ex Abundante Ad Cautelam with Compulsory Counterclaims and Cross-claims, Respondent
argued that the Performance Bond merely guaranteed the 20% down payment and not the entire obligation of
Mabunay under the Construction Agreement. Since the value of the projects accomplishment already
exceeded the said amount, Respondents obligation under the Performance Bond had been fully extinguished.
As to the claim for alleged overpayment to Mabunay, Respondent contended that it should not be credited
against the 20% down payment which was already exhausted and such application by Petitioner is tantamount
to reviving an obligation that had been legally extinguished by payment. Respondent also set up a cross-claim
against Mabunay who executed in its favor an Indemnity Agreement whereby Mabunay undertook to indemnify
Respondent for whatever amounts it may be adjudged liable to pay Petitioner under the surety bond.
On February 2, 2010, CIAC rendered its Decision and made Awards in favor of Petitioner. CIAC ruled that
Mabunay had incurred delay which entitled Petitioner to the stipulated liquidated damages and unrecouped
down payment.
Dissatisfied, Respondent filed in the CA a Petition for Reviewunder Rule 43 of the 1997 Rules of Civil
Procedure, as amended, which reversed the CIACs ruling.
Hence, the present Petition for Review on Certiorari under Rule 45 seeking to reverse the CA insofar as it
denied its claims under the Performance Bond and to reinstate in its entirety the February 2, 2010 CIAC
Decision.

ISSUE:
Whether or not the Alternative Dispute Resolution Act of 2004 and the Special ADR Rules have stripped the CA
of jurisdiction to review arbitral awards?

ARGUMENT:
Petitioner contends that that with the institutionalization of alternative dispute resolution under RA No. 9285,
otherwise known as the Alternative Dispute Resolution Act of 2004, the CA was divested of jurisdiction to
review the decisions or awards of the CIAC.

RULING:
NO. The Petitioners contention is without merit. Petitioner erroneously relied on the provision in RA No.
9285 allowing any party to a domestic arbitration to file in the RTC a petition either to confirm, correct or vacate
a domestic arbitral award.
The Petition is GRANTED. The assailed decision of the CA is REVERSED and SET ASIDE. The Award made
in the Decision rendered by CIAC dated February 2, 2010 is REINSTATED with MODIFICATIONS.
RATIO DECIDENDI:

SC holds that RA No. 9285 did not confer on RTCs jurisdiction to review awards or decisions of the CIAC in
construction disputes. On the contrary, Section 40 thereof expressly declares that confirmation by the RTC is
NOT required, thus:
SEC. 40. Confirmation of Award. The confirmation of a domestic arbitral award shall be governed by Section
23 of R.A. 876.
A domestic arbitral award when confirmed shall be enforced in the same manner as final and executory
decisions of the Regional Trial Court.
The confirmation of a domestic award shall be made by the regional trial court in accordance with the Rules of
Procedure to be promulgated by the Supreme Court.
A CIAC arbitral award need not be confirmed by the regional trial court to be executory as provided under E.O.
No. 1008. (Emphasis supplied.)
EO No. 1008 vests upon the CIAC original and exclusive jurisdiction over disputes arising from, or connected
with, contracts entered into by parties involved in construction in the Philippines, whether the dispute arises
before or after the completion of the contract, or after the abandonment or breach thereof. By express
provision of Section 19 thereof, the arbitral award of the CIAC is final and unappealable, except on questions of
law, which are appealable to the Supreme Court. With the amendments introduced by RA No. 7902 and
promulgation of the 1997 Rules of Civil Procedure, as amended, the CIAC was included in the enumeration of
quasi- judicial agencies whose decisions or awards may be appealed to the CA in a Petition for Review under
Rule 43. Such review of the CIAC award may involve either questions of fact, of law, or of fact and law.
Petitioner misread the provisions of A.M. No. 07-11-08-SC (Special ADR Rules) promulgated by the SC and
which took effect on October 30, 2009. Since RA No. 9285 explicitly excluded CIAC awards from domestic
arbitration awards that need to be confirmed to be executory, said awards are therefore not covered by Rule 11
of the Special ADR Rules, as they continue to be governed by EO No. 1008, as amended and the rules of
procedure of the CIAC. The CIAC Revised Rules of Procedure Governing Construction Arbitration provide for
the manner and mode of appeal from CIAC decisions or awards in Section 18 thereof, which reads:

SECTION 18.2 Petition for review. A petition for review from a final award may be taken by any of the
parties within fifteen (15) days from receipt thereof in accordance with the provisions of Rule 43 of the
Rules of Court.

Tuna Processing, Inc. vs. Philippine Kingford, Inc.

G.R. No. 185582 (February 29, 2012)

May a foreign corporation not licensed to do business in the Philippines, but which collects royalties from
entities in the Philippines, sue here to enforce a foreign arbitral award?
FACTS:
Kanemitsu Yamaoka, co-patentee of a US Patent, Philippine Letters Patent, and an Indonesian Patent, entered
into a Memorandum of Agreement (MOA) with five Philippine tuna processors including Respondent Philippine
Kingford, Inc. (KINGFORD). The MOA provides for the enforcing of the abovementioned patents, granting
licenses under the same, and collecting royalties, and for the establishment of herein Petitioner Tuna
Processors, Inc. (TPI).

Due to a series of events not mentioned in the Petition, the tuna processors, including Respondent
KINGFORD, withdrew from Petitioner TPI and correspondingly reneged on their obligations. Petitioner TPI
submitted the dispute for arbitration before the International Centre for Dispute Resolution in the State of
California, United States and won the case against Respondent KINGFORD.
To enforce the award, Petitioner TPI filed a Petition for Confirmation, Recognition, and Enforcement of Foreign
Arbitral Award before the RTC of Makati City. Respondent KINGFORD filed a Motion to Dismiss, which the
RTC denied for lack of merit. Respondent KINGFORD then sought for the inhibition of the RTC judge, Judge
Alameda, and moved for the reconsideration of the order denying the Motion. Judge Alameda inhibited himself
notwithstanding [t]he unfounded allegations and unsubstantiated assertions in the motion. Judge Ruiz, to
which the case was re-raffled, in turn, granted Respondent KINGFORDSs Motion for Reconsideration and
dismissed the Petition on the ground that Petitioner TPI lacked legal capacity to sue in the Philippines.
Petitioner TPI is a corporation established in the State of California and not licensed to do business in the
Philippines.

Hence, the present Petition for Review on Certiorari under Rule 45.

ISSUE:
Whether or not a foreign corporation not licensed to do business in the Philippines, but which collects royalties
from entities in the Philippines, sue here to enforce a foreign arbitral award?
ARGUMENT:
Petitioner TPI contends that it is entitled to seek for the recognition and enforcement of the subject foreign
arbitral award in accordance with RA No. 9285 (Alternative Dispute Resolution Act of 2004), the Convention on
the Recognition and Enforcement of Foreign Arbitral Awards drafted during the United Nations Conference on
International Commercial Arbitration in 1958 (New York Convention), and the UNCITRAL Model Law on
International Commercial Arbitration (Model Law), as none of these specifically requires that the party seeking
for the enforcement should have legal capacity to sue.

RULING:
YES. Petitioner TPI, although not licensed to do business in the Philippines, may seek recognition and
enforcement of the foreign arbitral award in accordance with the provisions of the Alternative Dispute
Resolution Act of 2004. A foreign corporations capacity to sue in the Philippines is not material insofar as the
recognition and enforcement of a foreign arbitral award is concerned.
The Resolution of the RTC is REVERSED and SET ASIDE.
RATIO DECIDENDI:
Sec. 45 of the Alternative Dispute Resolution Act of 2004 provides that the opposing party in an application for
recognition and enforcement of the arbitral award may raise only those grounds that were enumerated under
Article V of the New York Convention, to wit:

Article V
1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is
invoked, only if that party furnishes to the competent authority where the recognition and enforcement is
sought, proof that:
a. The parties to the agreement referred to in Article II were, under the law applicable to them, under some
incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any
indication thereon, under the law of the country where the award was made;
b. The party against whom the award is invoked was not given proper notice of the appointment of the
arbitrator or of the arbitration proceedings or was otherwise unable to present his case;
c. The award deals with a difference not contemplated by or not falling within the terms of the submission to
arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that,
if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of
the award which contains decisions on matters submitted to arbitration may be recognized and enforced;
d. The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement
of the parties, or, failing such agreement, was not in accordance with the law of the country where the
arbitration took place; or
e. The award has not yet become binding on the parties, or has been set aside or suspended by a competent
authority of the country in which, or under the law of which, that award was made.
2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the
country where recognition and enforcement is sought finds that:
a. The subject matter of the difference is not capable of settlement by arbitration under the law of that country;
or

b. The recognition or enforcement of the award would be contrary to the public policy of that country.
Not one of the abovementioned exclusive grounds touched on the capacity to sue of the party seeking the
recognition and enforcement of the award.
Pertinent provisions of the Special Rules of Court on Alternative Dispute Resolution, which was promulgated by
the Supreme Court, likewise support this position.

Rule 13.1 of the Special Rules provides that [a]ny party to a foreign arbitration may petition the court to
recognize and enforce a foreign arbitral award. The contents of such petition are enumerated in Rule 13.5.
Capacity to sue is not included. Oppositely, in the rule on local arbitral awards or arbitrations in instances
where the place of arbitration is in the Philippines, it is specifically required that a petition to determine any
question concerning the existence, validity and enforceability of such arbitration agreement available to the
parties before the commencement of arbitration and/or a petition for judicial relief from the ruling of the arbitral
tribunal on a preliminary question upholding or declining its jurisdiction after arbitration has already
commenced should state [t]he facts showing that the persons named as petitioner or respondent have legal
capacity to sue or be sued.

Indeed, it is in the best interest of justice that in the enforcement of a foreign arbitral award, the Court
deny availment by the losing party of the rule that bars foreign corporations not licensed to do business in
the Philippines from maintaining a suit in Philippine courts. When a party enters into a contract containing
a foreign arbitration clause and, as in this case, in fact submits itself to arbitration, it becomes bound by
the contract, by the arbitration and by the result of arbitration, conceding thereby the capacity of the other
party to enter into the contract, participate in the arbitration and cause the implementation of the result.
Although not on all fours with the instant case, also worthy to consider is the wisdom of then Associate Justice
Flerida Ruth P. Romero in her Dissenting Opinion in Asset Privatization Trust v. Court of Appeals [1998], to wit:

xxx Arbitration, as an alternative mode of settlement, is gaining adherents in legal and judicial circles here and
abroad. If its tested mechanism can simply be ignored by an aggrieved party, one who, it must be stressed,
voluntarily and actively participated in the arbitration proceedings from the very beginning, it will destroy the
very essence of mutuality inherent in consensual contracts.
Clearly, on the matter of capacity to sue, a foreign arbitral award should be respected not because it is favored
over domestic laws and procedures, but because Republic Act No. 9285 has certainly erased any conflict of
law question.

Finally, even assuming, only for the sake of argument, that the RTC correctly observed that the Model Law, not
the New York Convention, governs the subject arbitral award, Petitioner TPI may still seek recognition and
enforcement of the award in Philippine court, since the Model Law prescribes substantially identical exclusive
grounds for refusing recognition or enforcement.

National Irrigation Administration (NIA) vs. CA, CIAC and Hydro Resources Contractors Corporation
G.R. No. 129169 (November 17, 1999)

Does the Construction Industry Arbitration Commission (CIAC) have jurisdiction over construction contracts
entered into between parties before the creation of said Commission in 1985?
When a construction contract contains an arbitration clause, is it still necessary for the parties thereto to agree
to submit disputes arising therefrom specifically to the CIAC for the latter to acquire jurisdiction?

FACTS:
In a competitive bidding held by Petitioner NIA, Hydro Resources Contractors Corporation (HYDRO) was
awarded Contract for the construction of the main civil works of the Magat River Multi-Purpose Project. The
contract provided that Respondent HYDRO would be paid partly in Philippine pesos and partly in U.S. dollars.
Respondent HYDRO substantially completed the works under the contract in 1982 and final acceptance by
Petitioner NIA was made in 1984. Respondent HYDRO thereafter determined that it still had an account
receivable from Petitioner NIA representing the dollar rate differential of the price escalation for the contract.
After unsuccessfully pursuing its case with Petitioner NIA, Respondent HYDRO filed with the CIAC a Request
for Adjudication of the aforesaid claim. Petitioner NIA filed its Answer wherein it questioned the jurisdiction of
the CIAC alleging lack of cause of action, laches and estoppel in view of Respondent HYDROs alleged failure
to avail of its right to submit the dispute to arbitration within the prescribed period as provided in the contract.
Later, Petitioner NIA filed a Motion to Dismiss alleging lack of jurisdiction over the disputes.

The arbitral body constituted by both parties issued an order which deferred the determination of the Motion to
Dismiss and resolved to proceed with the hearing of the case on the merits as the grounds cited by Petitioner
NIA did not seem to be indubitable. Petitioner NIA filed a Motion for Reconsideration of the aforesaid Order.
CIAC in denying the Motion for Reconsideration ruled that it has jurisdiction over the Respondent HYDROs
claim over Petitioner NIA pursuant to E.O 1008 and that the hearing should proceed as scheduled. CIAC then
rendered a decision in the main case in favor of Respondent HYDRO.

Petitioner NIA filed with the CA an Original Action of Certiorari and Prohibition with prayer for Restraining Order
and/or Injunction which dismissed the same.

Hence, the present Petition for Certiorari and Prohibition with urgent prayer for Temporary Restraining Order
and Writ of Preliminary Injunction.

ISSUE:
Whether or not CIAC has jurisdiction to hear and try the dispute between the parties?
ARGUMENTS:
Petitioner NIA alleged that CIAC has no jurisdiction to hear and try the dispute between the parties as EO No.
1008 had no retroactive effect. It contended that there was no agreement with Respondent HYDRO to submit
the dispute to CIAC for arbitration considering that the construction contract was executed in 1978 and the
project completed in 1982, whereas the Construction Industry Arbitration Law creating CIAC was signed only in
1985; and that while they have agreed to arbitration as a mode of settlement of disputes, they could not have
contemplated submission of their disputes to CIAC. Petitioner NIA further argued that records show that it had
not voluntarily submitted itself to arbitration by CIAC. Petitioner NIA contended that the CIAC did not acquire

jurisdiction over the dispute since it was only Respondent HYDRO that requested for arbitration. It asserts that
to acquire jurisdiction over a case, as provided under E.O. 1008, the request for arbitration filed with CIAC
should be made by both parties, and hence the request by one party is not enough.

RULING:
YES. Contrary to the claim of Petitioner NIA, the CIAC has jurisdiction over the controversy.
The instant Petition is DISMISSED for lack of merit.
RATIO DECIDENDI:
EO No. 1008, otherwise known as the Construction Industry Arbitration Law which was promulgated on 4
February 1985, vests upon CIAC original and exclusive jurisdiction over disputes arising from, or connected
with contracts entered into by parties involved in construction in the Philippines, whether the dispute arises
before or after the completion of the contract, or after the abandonment or breach thereof. The disputes may
involve government or private contracts. For the Board to acquire jurisdiction, the parties to a dispute must
agree to submit the same to voluntary arbitration.

The complaint of Respondent HYDRO against Petitioner NIA on the basis of the contract executed between
them was filed on 7 December 1994, during the effectivity of E.O. No. 1008. Hence, it is well within the
jurisdiction of CIAC. The jurisdiction of a court is determined by the law in force at the time of the
commencement of the action.

Petitioner NIAs argument that CIAC had no jurisdiction to arbitrate on contract which preceded its existence is
untenable. E.O. 1008 is clear that the CIAC has jurisdiction over all disputes arising from or connected with
construction contract whether the dispute arises BEFORE or AFTER the completion of the contract. Thus, the
date the parties entered into a contract and the date of completion of the same, even if these occurred before
the constitution of the CIAC, did not automatically divest the CIAC of jurisdiction as long as the dispute
submitted for arbitration arose after the constitution of the CIAC. Stated differently, the jurisdiction of CIAC is
over the dispute, not the contract; and the instant dispute having arisen when CIAC was already constituted,
the arbitral board was actually exercising current, not retroactive, jurisdiction.

It is undisputed that the contracts between Respondent HYDRO and Petitioner NIA contained an arbitration
clause wherein they agreed to submit to arbitration any dispute between them that may arise before or after the
termination of the agreement. Consequently, the claim of Respondent HYDRO having arisen from the contract
is arbitrable. Petitioner NIAs reliance with the ruling on the case of Tesco Services Incorporated v. Vera, is
misplaced.

The 1988 CIAC Rules of Procedure which were applied by this Court in the Tesco case had been duly
amended by CIAC Resolutions No. 2-91 and 3-93, Section 1 of Article III of which read as follows:
Submission to CIAC Jurisdiction An arbitration clause in a construction contract or a submission to
arbitration of a construction contract or a submission to arbitration of a construction dispute shall be deemed an
agreement to submit an existing or future controversy to CIAC jurisdiction, notwithstanding the reference to a
different arbitration institution or arbitral body in such contract or submission. When a contract contains a
clause for the submission of a future controversy to arbitration, it is not necessary for the parties to enter into a
submission agreement before the claimant may invoke the jurisdiction of CIAC.
Under the present Rules of Procedure, for a particular construction contract to fall within the jurisdiction of
CIAC, it is merely required that the parties agree to submit the same to voluntary arbitration. Unlike in the
original version of Section 1, as applied in the Tesco case, the law as it now stands does not provide that the
parties should agree to submit disputes arising from their agreement specifically to the CIAC for the latter to
acquire jurisdiction over the same. Rather, it is plain and clear that as long as the parties agree to submit to
voluntary arbitration, regardless of what forum they may choose, their agreement will fall within the jurisdiction
of the CIAC, such that, even if they specifically choose another forum, the parties will not be precluded from
electing to submit their dispute before the CIAC because this right has been vested upon each party by law,
i.e., E.O. No. 1008.

Moreover, it is undeniable that Petitioner NIA agreed to submit the dispute for arbitration to the CIAC. Petitioner
NIA through its counsel actively participated in the arbitration proceedings by filing an Answer with
Counterclaim, as well as its compliance wherein it nominated arbitrators to the proposed panel, participating in
the deliberations on, and the formulation of, the Terms of Reference of the arbitration proceeding, and
examining the documents submitted by Respondent HYDRO after Petitioner NIA asked for the originals of the
said documents.